Correlation Between XCMG Construction and Guangdong Electric

Can any of the company-specific risk be diversified away by investing in both XCMG Construction and Guangdong Electric at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining XCMG Construction and Guangdong Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between XCMG Construction Machinery and Guangdong Electric Power, you can compare the effects of market volatilities on XCMG Construction and Guangdong Electric and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in XCMG Construction with a short position of Guangdong Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of XCMG Construction and Guangdong Electric.

Diversification Opportunities for XCMG Construction and Guangdong Electric

0.25

Correlation Coefficient

XCMG Construction  Guangdong Electric

Modest diversification

The 3 months correlation between XCMG and Guangdong is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding XCMG Construction Machinery and Guangdong Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Electric Power and XCMG Construction is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on XCMG Construction Machinery are associated (or correlated) with Guangdong Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Electric Power has no effect on the direction of XCMG Construction i.e., XCMG Construction and Guangdong Electric go up and down completely randomly.

Pair Corralation between XCMG Construction and Guangdong Electric

Assuming the 90 days trading horizon XCMG Construction Machinery is expected to under-perform the Guangdong Electric. In addition to that, XCMG Construction is 3.51 times more volatile than Guangdong Electric Power. It trades about -0.26 of its total potential returns per unit of risk. Guangdong Electric Power is currently generating about -0.29 per unit of volatility. If you would invest  206.00  in Guangdong Electric Power on October 12, 2024 and sell it today you would lose (7.00) from holding Guangdong Electric Power or give up 3.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

XCMG Construction Machinery  vs.  Guangdong Electric Power

XCMG Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XCMG Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Guangdong Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with XCMG Construction and Guangdong Electric

The main advantage of trading using opposite XCMG Construction and Guangdong Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XCMG Construction position performs unexpectedly, Guangdong Electric can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Guangdong Electric will offset losses from the drop in Guangdong Electric's long position.

The idea behind XCMG Construction Machinery and Guangdong Electric Power pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.